11 Reasons to Vote NO on SB140, the Internet Sales Tax

SB140, the Internet Sales Tax will now be voted on Monday, April 3. Below are just 11 reasons to vote NO on SB140 and counters various arguments used to support the bill. Consider using these arguments in asking your state representative to vote NO on SB140, the Internet Sales Tax.

1.Vote NO on SB140 – It is Unconstitutional

SB140, the Internet Sales Tax is clearly unconstitutional. The house sponsor admitted that the bill was unconstitutional in the House Revenue and Tax committee on Tuesday, March 28 (See video at time stamp 10:46:40 A.M.). Under Quill vs. North Dakota, the U.S. Supreme Court has ruled that a person without a physical presence in a state cannot be forced by a state government to collect and remit sales taxes. That is why there is a use tax on the books, and not an internet sales tax.

Specifically, SB140 violates the Commerce Clause and the Dormant Commerce Clause of the U.S. Constitution as these internet purchases fall within the purview of interstate commerce, and thus Congressional authority. The bill itself basically admits it is unconstitutional and a test case would have to be pursued to overturn long-standing supreme court precedent.

It is not wise to pass a tax law on the hope that maybe, possibly, one day a couple of years from now the U.S. Supreme Court will change the law.

Vote NO on SB140 – It is asking the Supreme Court to legislate from the bench and forces a duplicative test case

Since it is basically admitted in the bill and admitted by the House sponsor that this bill is unconstitutional, this bill would create a “test case” to challenge established Supreme Court doctrine. The bill is basically asking the Supreme Court to “legislate from the bench” and overturn long standing supreme court doctrine. This flies in the face of conservative judicial philosophy of where the legislative body should make the law. Here, the only legislative body who can make a law on this issue is Congress.

Although this may be frustrating, that is the law and the rule of law should always be championed by lawmakers everywhere. This bill encourages the Supreme Court to legislative from the bench and change the law WITHOUT Congressional action. However, a test case is already underway in South Dakota on this issue. Any test case in Arkansas would be duplicative.

A taxpayer-funded test case to see if the state can find a way to get more taxes from people seems counter-productive when a test case on the issue is already ongoing.

Vote NO on SB140 – It violates the Republican Party Platform

The Washington County Republican Committee and Benton County Republican Committee have passed resolutions opposing an Internet Sales Tax. This is because the Republican Party Platform speaks to the taxing and regulation of e-commerce.

Specifically, the 2016 Republican Party Platform says the following:

“We want government to encourage the sharing economy and on-demand platforms to compete in an open market, and we believe public policies should encourage the innovation and competition that are essential for an Internet of Things to thrive.” (page 6). “We will consistently support internet policies that allow people and private enterprise to thrive, without providing new and expanded government powers to tax and regulate so that the internet does not become the vehicle for a dramatic expansion of government power.” (page 25).

SB140, the Internet Sales Tax is expanding government powers to tax and regulate internet purchases, and thus violates the Republican Party platform.

According to a poll of Likely Arkansas Voters, a majority of Arkansans seem to be against an internet sales tax.

When asked “The Internet should remain as free from government regulation and taxation as possible.”

74% total agree

88% of Republicans agree

78% of Independents agree

59% of Democrats agree

83% of Conservatives agree

When asked “Do you favor or oppose federal legislation that changes how states collect sales tax from Internet purchases?”

74% total oppose

78% of Republicans oppose

79% of Independents oppose

66% of Democrats opposed

81% of Conservatives oppose

When asked “Would you favor or oppose new federal legislation that changes [the] system by allowing states to make online retailers collect and process sales taxes on internet purchases based on where the customer is located?”

59% total oppose

67% of Republicans opposed

67% of Independents opposed

67% of Conservatives Opposed

The poll by Mercury, and commissioned by the National Taxpayers Union and R Street, a free market think tank group, can be read in full HERE. The poll was a statewide survey taken on June 1-2, 2014 among 400 likely Arkansas voters and has a margin of error of 4.9%.

Caveat: Although this poll makes references to “federal legislation” on internet sales tax laws, it is arguably comparable to similar measures on internet sales tax laws at the state level. Because it is currently unconstitutional for states to pass internet sales tax legislation like SB140, these are the only poll numbers known on the issue.

Vote NO on SB140 – It won’t save “Mom and Pop” or Brick and Mortar Stores

There is an argument that SB140 will somehow same mom and pop shops or brick and mortar stores. Some argue that this is “leveling the playing field” but this bill will not lead to a flurry of new big box retailers. People make purchases online due to the convenience of ordering from their couch and getting it delivered straight to their door.

If taxes were the motivating factor on retail purchases, people would go from city to city and county to county to find the best sales tax rates available. This hardly ever happens and instead people choose convenience over price. The very interests (big box retailers) helping push the internet sales tax are those who have put small mom and pop stores out of business all over Arkansas for decades.

People will still make purchases online if SB140 passes, they will just have less money with which to make them.

Vote NO on SB140 – It is a regressive tax increase as it brings in an increased amount of taxes

There are many who say that this is not a “new” tax or tax “increase” on the people of Arkansas. However, many people do think it is a tax increase or new tax and almost everyone will FEEL it as a tax increase or new tax. Many people view taxes simplistically. If they are paying more than they paid before, people view that as a tax INCREASE. If there is NOT a tax there now when they check out online, and there then will be a tax after this bill – this is seen by many as a NEW tax.

The plain truth is that this bill would mean possibly $100 MILLION a YEAR in new revenue straight from the pocketbooks of Arkansans into the government coffers.

As is, the bill doesn’t even say what all this new money will be used for. This is a regressive tax increase that will be felt hardest by the low to middle income working class throughout the state of Arkansas.

Vote NO on SB140 – Why Amazon Changed Positions on Internet Sales Tax

There are some who argue that Amazon voluntarily agreeing to collect and remit sales taxes somehow shows this isn’t unconstitutional or somehow means this is a good bill. This is a fundamental misunderstanding of constitutional law. The constitution restricts government actors, not private entities. Therefore, Amazon voluntarily collecting and remitting the tax does not make this unconstitutional bill suddenly constitutional. The government forcing out of state retailers to do so is what makes it unconstitutional and will lead to legal challenges.

Also, there is an argument that because Amazon is so large and their founder is so rich that this couldn’t possibly mean that this bill is unconstitutional or not supported by e-commerce companies. This is actually a good thing to consider. It is likely Amazon supports this type of legislation due to their competitive advantage over smaller e-commerce companies.

Amazon has a competitive advantage over smaller e-commerce companies because they have the resources to comply with thousands of taxing jurisdictions all over the country to collect and remit this sales tax. They have the software and people to make sure they know the exact tax rates from states, counties, and cities but smaller e-commerce companies do not have those same resources. Passing legislation that will have a disparate impact on smaller companies that they compete against would directly benefit Amazon, and thus shows why they might support this legislation.

For other reasons that Amazon has changed their position on the Internet Sales Tax see this article by bankableinsight.com.

So, any arguments that this bill isn’t constitutional because Amazon is voluntarily collecting and remitting is off-base. Also, any arguments that Amazon changing their position on this issue somehow makes this a good bill also does not consider the benefits Amazon receives from this legislation by hurting their smaller competitors.

Vote NO on SB140 – How it differs from HB1388, the enforcement mechanism on the use tax bill

HB1388 has already passed the House this session and has the same sponsors. HB1388 is very different from SB140. HB1388 is an enforcement mechanism on the use tax that is already on the books. It would require out of state sellers to notify buyers of how much use tax they owe to the state. This information would also be sent to the Arkansas Department of Finance and Administration. SB140 would shift the use tax into a new sales tax for online purchases. HB1388 is arguably constitutional, but SB140 is clearly unconstitutional.

Vote NO on SB140 – Don’t open up taxing/regulatory authority beyond our borders

The founders knew what they were doing when they mandated that only Congress could regulate interstate commerce. This prevents one state from taxing or regulating another person in another state when they have no physical presence in that state. This bill seeks to expand Arkansas’s taxing and regulatory authority beyond the state’s borders. This is a slippery slope as it could be reciprocated by high taxing states to come into Arkansas with their taxing and regulatory authority.

Vote NO on SB140 – Let the Task Force review this

A Tax Reform task force has been established to study long-term, large scale tax reform for Arkansas. This issue can be addressed in that task force instead of pushed through now. This will give time to see how the legal battle on this issue shakes out in South Dakota and possibly up to the U.S. Supreme Court. It will also allow time to see how the voluntary collection and remittance of taxes on Amazon purchases effect the budget. It would be prudent to wait and allow the task force to review this when looking at other tax reform and see how this legislation fits in with all of that.

Vote NO on SB140 – About Justice Kennedy saying to review the Quill doctrine

The bill includes language about a concurring opinion that Justice Kennedy gave in the case of Direct Marketing Association vs Brohl (2015). In Justice Kennedy’s concurring opinion, he does include language suggesting that the court should reconsider the Quill doctrine (that a person without a physical presence in the state cannot be forced to collect and remit sales taxes). However, a concurring opinion is simply one justice’s opinion and has no weight of law. However, the actual majority opinion in that case cited the Quill doctrine without overturning it.

Although a single justice on the U.S. Supreme Court thinks SCOTUS should reconsider the doctrine, the majority of the court cited the Quill doctrine. They could have decided to overturn it if they wanted to. Legislation should not be passed based on the opinion of a single supreme court justice.

These are just 11 reasons to vote NO on SB140. The ultimate reason though is that many view this as a tax increase as it will bring in over $100 million a year in new money from taxpayers. Almost everyone will feel this as a tax increase.

For Conduit for Action’s final article on SB140, the Internet Sales Tax, please click HERE.